THE FIRST ELECTION BUDGET? 1311 LVII

THE FIRST ELECTION BUDGET ?

“With one bound our hero was free.” Not quite. Nevertheless the 2014 Budget, introduced in mid-October, was noteworthy. Hard on the heels of an embarrassing defeat for the Government on the Referendum to abolish the Senate, it was billed as “ the last of the tough budgets.” Maybe. Certainly with breath-taking panache – some would say cynicism – the paper targets were achieved without increasing direct taxation or disturbing most of the major pressure groups in receipt of government hand-outs.

The budget was gift wrapped for Labour, necessary given its poor poll ratings. Not only could the Government announce, triumphantly, that Ireland should be able to leave the Troika’s embrace ahead of schedule at the end of the year – the one fig leaf Labour in power had clung to – but crucially, from Labour’s perspective, old age pensions, child benefit and unemployment payments weren’t touched.
Whether this will be sufficient to reverse Labour’s slide remains to be seen, but it now has a foundation on which to build. If the omens remain good, next year’s budget could be at worst neutral, at best able to offer some sweeteners. The Coalition is in for the long haul and if its luck holds it could achieve a Fine Gael – Labour first by being re-elected, though there is still a long way to go.

The mortgage crisis elephant remains but the Government has bought time with the new insolvency regime and can plead that the public give it a chance to work. Recent deals on debt restructuring, combined with a carryover effect of measures in the last two budgets provided some wiggle room. Increased emigration and unexpectedly high levels of job creation added to this with the double effect of reduced unemployment pay-outs and increased tax revenues.

The net result was that the Budget cut spending by $ three billion instead of four. This was achieved on paper through enhanced cheese paring at the margins of the sort seen in the past two years, further tax increases on alcohol and cigarettes, more stealth taxes in areas such as private health insurance (something which may yet rebound) and maternity benefits, plus the factoring – in of anticipated enhanced yields from the property tax and public sector pay cuts. The remaining shortfall was made up by a balancing figure heaped on the Department of Health, to be achieved inter alia through an overhaul of the medical card system – another potential banana skin.

The few sweeteners include maintenance of child benefit without means testing, plus the introduction of free GP care for all under – fives. These will do Fine Gael no harm either, though neither is defensible in other than political terms. Obviously a plateau has been reached and elements dear to special interest groups are not going to be touched this side of an election.

Fine Gael clearly took a tactical decision to give a helping hand to its junior partner. Yet it needs to tread warily in the health area. The measures proposed will impact most heavily on its traditional middle class support, already hard hit in recent years. The questionable under- fives measure is a zero sum one, paid for in effect by substantial reductions in the income threshold for medical cards for the over -70s. It is justified as a first step in the provision of universal free G.P. care – an election promise – but hardly makes sense in terms of any holistic approach to health care. The generally healthy young will be subsidised at the expense of the group most likely to require medical attention and expensive medicines– the elderly.

Another problematic health element in the budget, the capping of income tax relief for private health insurance, also affects almost exclusively the middle class. Here too it would appear to be game set and match to Labour. As I write, there is considerable uncertainty as to the precise financial implications of the changes but what IS apparent is that Michael Noonan’s dismissive comment that only “ gold –plated” health insurance policies would be affected was wide of the mark. Many, perhaps most, ordinary families with quite modest health insurance are going to be further affected on top of already spiralling annual premium increases.

Those with private health insurance comprise for the most part people with no hope of qualifying for medical cards – which provide for free medical care – on income grounds, though the threshold is modest. There are certainly advantages in terms of fast tracking for some medical procedures but private insurance still leaves considerable costs to be met from taxed income for medicines, consultations and tests. Premiums have risen steeply in recent years with the old VHI now facing competition from rival companies cherry picking the young and the healthy. Throw in a 50% surcharge for over 65’s and top it off with further restrictions on medical cards for the over 70s and the seeds of discontent are there.

Health is a sensitive issue all round. Ireland, for better or worse, has a two tier health system. Political correctness dictates that all parties state publicly that this is undesirable, inequitable and socially divisive with the left shouting that it is unacceptable that those with money should be able to buy better health care and, indeed, to queue jump for routine operations.

The problem is that Ireland, unlike most advanced Western European countries, never had a single universal health system and the health sector was until recently chronically underfunded. Historically the gap between health care for those on low incomes, for whom the state provided rudimentary care based on social insurance, and the bulk of the population, was bridged by a state sponsored voluntary health insurance system (VHI), which provided reasonable cover at modest rates.

However the last two decades has seen a dramatic expansion of free medical care for those on lower incomes, in the form of medical cards, for the most part, but not exclusively, means tested. The current situation is that almost half the population, including all those on social welfare, hold medical cards, possession of which also provides free access to a variety of other welfare and educational programmes and benefits. There are, moreover, considerable variations in the percentages holding cards in different counties, for whatever reason.

The other half of the population, including many on very modest incomes, enjoy none of this. One result has been poverty traps with possession of a card and its benefits proving a disincentive to seeking work. The system, in short, is a mess, hence the announced root and branch overhaul. Media focus since the budget has been on recent hard cases where, on review, cards have been denied or withdrawn . The mess will take some sorting. The political fallout may be considerable

The Government now looks more secure and united than for some time. The challenge it poses to the lukewarm electorate is what, in practical terms, is the alternative? In theory, correct. But in practice matters can evolve differently. Albert Reynolds remarked that it was the small hurdles which tripped politicians up. The Government, Fine Gael especially, should beware lest medical cards and remarks about gold plate do for it also.

October 20 2013

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